Debt and Civilization – Part 1 (An Overview)

Criton Crisis in Economic Thought, Worldview and Social Behavior

“There is simply too much debt in the world today.”

Jaime Caruana, General Manager, Bank for International Settlements

June 27, 2014

One year ago, when total global debt had reached its highest level in human history both in absolute terms ($199 trillion) and as percent of global output (286%), the Bank for International Settlements (BIS – the global economy’s central bank of central banks) concluded that “there is simply too much debt in the world today,” warning that the global economy is more vulnerable to collapse now than it was prior to the 2008 failure of Lehman Brothers.

Remarkably, the BIS had also warned as early as 2003 that the global debt of financial institutions and households was becoming “too much”, predicting that if not curbed it would lead to financial crisis. When BIS warnings went unheeded and the predicted crisis finally arrived in 2008, a complete meltdown of the global economy was barely avoided through massive new debt issuance when governments borrowed trillions to bail out private financial institutions.

The result has been that the original debt crisis of 2008 has grown to be a much greater menace to the world economy today. The size of the crisis has reduced the world’s private financial industry to an impotent dependent on government subsidies, as these taxpayer-funded subsidies to private financial institutions resulted in an explosion of government debt from $33 trillion in the beginning of 2008 to nearly $60 trillion today.

The world responded to the private debt crisis of 2008 with a tsunami of government indebtedness that has nearly doubled global sovereign debt, leaving governments enfeebled by over- indebtedness and weakened revenue raising capacity, unable to generate effective policies, and running out of time, money and legitimacy.

The colossal size of global debt makes today’s debt crisis a crisis of civilization. It is a crisis that can neither be understood nor addressed effectively without a comprehensive inquiry into the links between debt and civilization as these have unfolded from the dawn of history. Continue reading →

Does Europe Need Debt Relief?

Criton Crisis in Economic Thought

In response to a question posed at a forum by The International Economy magazine in its Spring 2015 issue:

Debt relief per se will do nothing to solve Europe’s problems, and could exacerbate them.  Under current political circumstances, debt relief would penalize pensioners and other fixed-income groups, reward the incumbent governments’ fiscal profligacy, and do nothing to stimulate growth while failing to make the total debt burden sustainable.

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Will America Soon Have an Inflation Problem?

Criton Crisis in Economic Thought

In response to a question posed at a forum by The International Economy magazine in its Spring 2015 issue:

Not a chance. Fed policy since 2008 has been to tilt against powerful deflationary forces that have yet to abate. How powerful are those forces? Consider this: from September 2008 to date, the monetary base has increased by 336%, from $0.94 trillion to $4.1 trillion, yet the annual CPI growth declined from 5% in September 2008 to a negative -0.1% in February 2015. So, we are talking about quite powerful underlying deflationary forces that will not go away.

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Western Civilization as Perennial Tension

Criton Worldview and Social Behavior

Civilization is described in many different ways involving language, history, religion, culture and self-identity that human groupings may share, but it can only be defined as a comprehensive, self-sustaining, meaning-conferring mode of existence of such groupings in history. For a collective subject such as a civilization to confer meaning to its constituent members it must imbue them with or propose to them, explicitly or implicitly, a grand purpose or aim – a final cause – around which life is organized.

Western Civilization is an entity far more encompassing than the European Enlightenment, even though most people tend to identify Western Civilization with the Enlightenment culture that emerged in Western Europe in the late 16th and early 17th centuries.

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The Impact of Physics on Character Formation

Criton Worldview and Social Behavior

The following is a reflection on a 2003 lecture On Aristotelian, Classical and Quantum Physics by Dr. Richard F. Hassing, an Associate Professor and my former teacher at the School of Philosophy of the Catholic University of America in Washington, D.C.

  1. Character, according to Aristotle, is shaped by choices, or at least entails choices[i].
  2. Choice differs from desire in that the objects of choice are achievable and possible but the objects of desire also include the untenable and impossible[ii].
  3. In other words, the limits of our powers — i.e., what is possible for us as a society and, hence, as individuals — determine the gap between desire and choice. The smaller our powers, the greater the gap between what we desire and what we choose; and when our powers are perceived as limitless, the gap between what we desire and what we choose evaporates — the very operation of choice is cancelled.
  4. Different theories of physical science entail different subjective understandings of what is possible for society as a whole and for the individuals in it.
  5. Different physical theories therefore shape different worldviews that are communicated beyond the science community to society as a whole. These generally shared worldviews, in turn, entail different schemes for individuals’ choices and thus different procedures of individual persons’ character formation.
  6. If a physical theory (i.e., superstring theory) professes that the existence of nearly infinite (10500) universes (multiverses) is a necessary corollary of its mathematics, and if this theory becomes hegemonic in the scientific community, then the conception of infinite possibilities (“everything is possible”) will eventually spread to the broader society, thereby eliminating the distinction between choice and desire.
  7. Whereas the technological advances of the present period construct and propose near-infinite choices, events in the domain of theoretical physics that endeavor to underpin and perpetuate these technological advances ironically undermine the very function of choice. The theoretical worldview that purports to be the foundation of our practical technology cancels the function of choice which our technology is intended to serve and replaces this function of choice with chaotic, incontinent desire.
  8. Without the habitual, repetitive exercise of choices, the formation of any type of habit or virtue and of any type of character is unattainable. Without character there is no individual human subject.
  9. This raises the question: is a collective human subject — a human society of any type — possible without the existence of individual human subject?

[i] “The virtues are choices or involve choices”, Aristotle Nicomachean Ethics II 11106a4

[ii] “Those who say that desire or passion or wish or opinion are the same do not think right; for choice is not found in irrational creatures …choice is not about impossible things … but desire is about impossible things”, Op. cit. III 1111b3-8

Time for the Big Questions

Criton Cognition and Social Behavior, Crisis in Economic Thought

The following was my final report to clients in the financial industry dated December 22, 2014 when I retired and shut down my economic research firm, Leto Research, LLC in order to pursue broader questions arising from the global debt crisis. It summarizes the reasoning that prompted the explorations reflected in the occasional posting of this website, suitably named Leto Postscripts to denote a continuity of concerns from my previous professional life as an economic researcher:

On November 5, 2008, two months after the eruption of the financial crisis, Queen Elizabeth II asked the director of research at the London School of Economics “Why did nobody notice it?” Continue reading →